A 403(b) Plan – Investment For Retired Life

The employer contributed retirement plans have become popular in past few years and each plan has its own benefits for the employer as well as the employees. One of these plans is known as 403(b), which also has a number of significant features associated with it. The plan is also referred to as tax-sheltered annuity or a tax-deferred annuity. Also, there are other employers, who call this plan as a 403(b) annuity. Whatever the name could be, this retirement plan combines the goodness of a traditional 401(k) plan, with many new aspects.

Who Can Participate

A traditional 401(k) is eligible for various types of employers and their employees. However, the 403(b) plan is restricted for few specific types of employers and organizations only. For instance, 501(c)(3) organizations can participate in this plan. Apart from this, the plan is also eligible for public school systems.

Important Features Of Plan

The most significant features of a 403(b) plan are listed as below:

• The employees are benefited to contribute towards this plan in the form of pre-tax funds.
• The employer can contribute towards the funds of his employees at his own will. It may be a fixed amount or may vary on the basis of willingness of the employer.
• Up to 100% of the employee salary is allowed to be deferred, provided the amount doesn’t go over $15,500.
• In case of employees of 50 years of age or above, the catch-up benefit of $5,000 is added.
• The total contributions from employer and employees can go up to the limit of $45,000.

Choosing the most appropriate investment type is the responsibility of the employee and he or she can make a choice from the list offered by the employer. As an employee, you can choose 403(b) plan annuity contract or custodial account. You can also go with the option of retirement income account.

Rules For Withdrawal

In order to start withdrawing your distribution without any tax penalty, you need to wait until the age of 59 and half. If you withdraw before reaching this age, you can face the penalty of 10%. However, in case of events like death or disability, you can demand for your distribution without any tax penalty. The minimum distributions to be withdrawn start after the age of 70 and half. You can withdraw the entire amount as lump sum or can fix regular installments on the basis of your life expectancy.  

Thus, 403(b) can be considered as one of the top beneficial retirement planning vehicles.